The Essence of Banking

As seen in today's New York Times:

"Banking should not be exciting. If banking is exciting there is something wrong with it."CLAY EWING, president of German American Bancorp., a community bank in Jasper, Ind.

This will be - and perhaps should be - the prevailing mentality of small business bankers for many years to come. You can not count on your banker to take the same kinds of risks with his or her capital that you take with your own. For one thing, the upside just isn't there. And, as the events of the last 12 months have clearly demonstrated, they're just not very good at making big, risky bets.

Truthfully, aggressive bankers have always been capable of doing more harm than good. The most dangerous thing a lender can do is extend credit outside the bank's risk tolerance. You may view it as a vote of confidence, but some day that aggressive decision is going to cause you some problems. You'll be sailing along "on plan," relying on the bank's capital to grow the business. You'll have made all your payments on time and met all the loan covenants.

One day an auditor or regulator may pull that file, however. They're going to see that - although you're performing as promised - that loan is technically outside the bank's standard lending policy. It's a "troubled asset." That's when your life (and that of your aggressive banker) suddenly gets exciting...in a very bad way.

Whether that seems right to you or not, it's probably best right now to expect your banker to LOVE boring, predictable credits and to avoid taking undue risks. Rely on your banker to fund the stable, predictable portion of your operation and seek alternative sources of capital for your more aggressive plays.